Source: www.resource-cap.com              Date: 25 May, 2011

In Mongolia, as in many western countries, mineral resources are the State’s property. Only legal entities registered in Mongolia, both domestic and international, can hold exploration and mining licenses. Exploration licenses are initially granted for 3 years, and can be extended twice, each time for a period of 3 years, with minimum amounts spent on exploration work from the second year onwards. This is a typical framework in the mining world to promote exploration, transfer into long life mining licenses and ultimate development into economically producing mines. This is known as “Use it or lose it” in the resources world.

But mining activity is not the only requirement to fulfill in playing by the rules. Recently, following scrutinizing site visits from very senior Mongolian officials, Petro China was faulted for not fulfilling contractual obligations in development of one of its oil blocks.  These included roads badly damaged by oil transportation traffic, no reclamation work completed, and industrial waste buried underground, against all environmental guidelines. Enquiry following complaints from local citizens revealed that the company did not have an environmental reclamation fund. Surprising to some, Mongolia is already a crude oil exporting country, earning USD155 million in 2010 and the amount is increasing rapidly. Petro China, the USD300 billion market cap NYSE listed company, and China Inc. as the obvious long term consumer, are important partners for Mongolia, albeit within the bounds of existing rules and subject to potential suspension (as in this case) without compliance.

Mongolia has taken a very pragmatic approach of supporting resources development in country. And with an increasingly keen eye from locals, “Use it, and don’t abuse it, or lose it” may be the new unofficial slogan for the frontier mining country going forward.